OpenAI's release of ChatGPT has changed the game. The chatbot has shown the public a clear indication of what artificial intelligence is capable of, answering complex queries, writing jokes, and writing code. It has even passed professional-level exams.
Artificial intelligence has become a buzzword across the tech industry, and AI stocks like C3.ai are suddenly surging. Microsoft (MSFT 0.66%), which formed a strategic partnership with OpenAI and invested $1 billion in the start-up in 2019, looks like an early favorite to benefit as it has been adding OpenAI tools like ChatGPT to its products, and is even rumored to be rolling out a ChatGPT-powered version of its Bing search engine in March.
However, another company that's on the cutting edge of AI has mostly been ignored in this conversation: Baidu (BIDU -0.03%), operator of China's leading search engine, and the company often referred to as the "Google of China."
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Baidu makes its move
Baidu is best known for its search engine, but it has been investing in artificial intelligence for several years, and those efforts are beginning to bear fruit. Baidu has launched fully driverless robotaxis in Wuhan and Chongqing, and it plans to establish the largest fully driverless ride-hailing area in the world with 200 robotaxis deployed across China by the end of 2023.
The Chinese tech giant is also making moves in search. According to Bloomberg, the company is preparing to debut a chatbot tool similar to ChatGPT in March that will give conversational-style search results. Baidu has been training its large machine-learning model, Ernie, with data for years, and it will underpin the technology in its chat-based search.
While Baidu is not a direct competitor with Alphabet (GOOG 0.07%) (GOOGL -0.02%), with its expanding robotaxi service and its upcoming chat-based search, it seems to be doing many of the things that Alphabet has aimed to do but has yet to put into practice.
Can Alphabet's Google respond?
Following the ChatGPT launch, Alphabet is under pressure like never before. Management called a "code red" meeting to respond to the new threat, and co-founder Sergey Brin is back in a hands-on role at the company for the first time in years.
Alphabet is already rebranding itself as an AI company. "Our long-term investments in deep computer science make us extremely well-positioned as AI reaches an inflection point, and I'm excited by the AI-driven leaps we're about to unveil in Search and beyond," CEO Sundar Pichai said in its most recent earnings release.
Alphabet provided more details about its plans for Search during its Q4 earnings call, but they were still vague. For example, Pichai said, "Very soon, people will be able to interact directly with our newest, most powerful language models as a companion to Search in experimental and innovative ways. Stay tuned."
Previously, Alphabet was reluctant to release its large language models and other AI technologies because it said they were often inaccurate, but also because the company seems reluctant to do things that could disrupt its business model. Ad-based search is highly profitable for Alphabet, and improving the product through chat-based search could mean harming the business.
After investing in artificial intelligence for a decade, the company's prowess in that technological arena is strong, no doubt, but Alphabet has applied that to incremental improvements in things like search listings and advertiser matches, rather than using it to build out new revenue streams.
As it sits on the sidelines while ChatGPT dazzles users, the company still seems like it lacks a strategy for the current moment. That may change, but a decade of building large language models like LaMDA and applying DeepMind's AI to its business should have better prepared it for the shift to conversational search.
What it means for investors
As the incumbent in search, Alphabet is naturally hesitant to make a move, but Baidu offers a combination of a search leader and a company willing to push the envelope in AI areas like self-driving cars and conversational search. It also just received another endorsement from BlackRock. The world's largest asset manager just upped its stake in Baidu from 5.2% to 6.6%.
The AI revolution is still just starting to take shape, and the field is wide open. For investors, the best way to get exposure to the sector may be through a basket of stocks. With its upcoming chat-based search launch and its expanding robotaxi network, Baidu shouldn't be overlooked.
